Tags: dollar | economy | euro | currency

LA Times: Dollar's Surge Has Mixed Impact on Economy

By    |   Tuesday, 07 April 2015 06:00 AM

The dollar has soared to multi-year highs against a range of foreign currencies in recent weeks, including a 12-year peak against the euro and a seven-year zenith versus the yen last month.

For American consumers, that's largely a good thing. It makes foreign travel cheaper, as our dollars can now be converted into more foreign currencies.

U.S. tourists took a record 68.3 million trips overseas in 2014, according to the International Trade Association, the Los Angeles Times reports.

A strong greenback also makes imports cheaper in dollar terms, so we should be paying less for some of our favorite consumer items.

On the downside, however, the rising dollar makes our exports more expensive in foreign currency terms and lessens the value of U.S. companies' foreign revenue when translated into dollars.

Many major companies, including IBM and Johnson & Johnson, have seen their earnings eroding by the ascendant dollar.

"U.S. exporters are being punished by these competitive depreciations, and this will lead to lower profits and less employment," said Campbell Harvey, an economics professor at Duke University's Business School and a frequent Newsmax TV guest, told the Times.

"This stuff will come back to bite U.S. economic growth."

Meanwhile, the euro's plunge has soured central banks on the common European currency, adding yet another twist to the raging global currency war. The euro stood at $1.1003 Friday.

"It is quite likely that central banks will continue to divest from the euro," Stephen Jen, managing partner at money manager SLJ Macro Partners, told The Wall Street Journal. "The main reason is that negative yields are a turnoff for central banks."

Central banks generally hold their currency reserves in bonds. The German 2-year government bond yield stands at negative 0.26 percent, compared with positive 0.55 percent for 2-year U.S. Treasurys.

That interest-rate differential makes dollars much more attractive than euros for central banks (and other investors).

"The euro no longer looks to be an attractive alternative to the persistent reserve currency, which is the dollar," Robert Sinche, global strategist at Amherst Pierpont Securities, told The Journal.

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The dollar has soared to multi-year highs against a range of foreign currencies in recent weeks, including a 12-year peak against the euro and a seven-year zenith versus the yen last month.
dollar, economy, euro, currency
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2015-00-07
Tuesday, 07 April 2015 06:00 AM
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